Trading As A Partnership


Could Going Into A Partnership With Someone You Trust Work For You?
And Are There Risks? Awareness Is The Key.

OnTax Dunfermline Accountant Discuss:

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Partnerships

Any Dunfermline accountant will confirm that many people are put off at the thought of going into business on their own. It may be worth considering then if forming a partnership would address your concerns and worries.

Would you prefer to have someone there with you to leap into the adventure with? If so then becoming a partnership may be the answer for you.

You can then share the excitement of starting your own business with someone you trust.

Overview Of Partnerships

Sharing Responsibilities

When you are a partnership you and the other partners can share the responsibility for the business debt, this spreads the debt between all partners so that it is not just you liable for it all.

As a partnership you also won’t have as much regulation as a limited company has, this will make it more flexible and easier to run your business the way you would like to.

As a Dunfermline accountant we have seen many small businesses benefit from this approach. As a partnership you will also have the advantage of being able to claim expenses.

Two Can Do It Better!

Some of these expenses are car and travel expenses such as mileage or vehicle fuel and repairs on your personal car, providing you have been using your car for business use.

You and your partner will be able to operate your business the way you had planned. This will give you more freedom and flexibility in your work life than what you would get if you were employed by someone else.

You can choose when you work, who does what and how you do the job.As long as you have a local Dunfermline accountant looking after the tax side of the business, there is little you have to worry about.

Risks & Rewards Of A Partnership

Partner 1 Skills
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Partner 2 Skills
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How Is A Partnership Registered?

Info Required

If you would like to become a partnership all you need to do is engage us as your Dunfermline accountant of choice, supply us with some personal details and we will then register you as a partnership.

You may wish to choose a suitable trading name for your partnership,  but the name must not include the following; LLP, PLC, public limited company, limited, limited liability partnership or Ltd and neither can it be the same as a trade mark which exists already.

Registering

Once registered you will receive a partnership UTR in the mail from HMRC with a few days. "UTR" is an abbreviation for "Unique Tax Reference" and this is a 10 digit number that exclusively identifies your partnership to the tax authorities.

"UTR" is an abbreviation for "Unique Tax Reference" and this is a 10 digit number that exclusively identifies your partnership to the tax authorities. When you receive this you should forward it on to us as this UTR will be required to submit your tax return to HMRC.

Each partner will also be required to register with HMRC for an individual UTR.

Partnership UTR

You should then receive a partnership UTR number in the post from HMRC within a few weeks time. This number will stay with the partnership for life and so you need to keep a permanent note of it somewhere safe.

You need to pass this number on to us as we will need this when it comes to submitting your partnership tax return. We will also register with HMRC as your Dunfermline accountant ensuring that we can handle matters with HMRC on your behalf.

 

Obligations

When you are registered as a partnership you will then be required to produce a partnership tax return (as well as tax returns for each of the partners) each year and submit it to HMRC.

The profits for the partnership are then split between the partners and entered on their tax returns. It's normal to split the profits equally but if you partnership shareholdings are set up in different proportions then those will be used.

Partnership Positive Thoughts

"When All You Have To Fear Is Fear Itself, It's Time To Feel The Fear - And Do It Anyway!"

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"Being Your Own Boss Is The First Step Towards A Brighter Future"

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"Often The Key To Personal Happiness Is In Being Master Of Your Own Destiny"

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"Make Sure Your Business Partner Is Rowing The Business Boat With You And Not Drilling Holes In It! "

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"Half The Battle is In The Mind - The Rest Is Opportunity You Create"

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Partnership Commitments

The Basics

When you are a partner in a partnership you have responsibilities you must keep, even if you employ the services of a Dunfermline accountant you still bear these responsibilities.

You and other partners are jointly responsible for keeping record of your business finances, submitting your partnership return when it is due and paying your taxes. As well as submitting a partnership return all partners will be required to submit a personal tax return.

Partnership Pre-nup

You should also decide what partner is going to be the ‘nominated partner’. The ‘nominated partner’ will be responsible for making sure the partnerships tax return is submitted to HMRC each year even if this just means liasing with a Dunfermline accountant.

It might be an idea for you to create a partnership agreement when you become a partnership. You should include such things as how you plan to finance the business, if one or more of the partners want to dissolve the partnership what happens, who does what work and if someone dies what is the process. By having this in place it will help the situation when it occurs.

Partnership Pre-nup

You may also want to consider having a business pre-nup drawn up to protect your business. You may need this when one partner wants to leave, or wants to retire.

This will help to ensure that they don’t leave the partnership to go and start their own business and take your existing clients with them. As almost any Dunfermline accountant will tell you, this is a very real risk.

How Is A Partnership Taxed?

The way you will be taxed as a partnership is similar to the way a sole trader is taxed. Each partner is taxed through their personal tax return, how much tax you pay depends on what your share of the profits are.

You will be required to submit a partnership tax return (or hire a Dunfermline accountant to do this) which will outline the profit made from the partnership for that tax year and the distribution of profits to go to each partner.

Each partner is then required to submit their personal tax return detailing the profits they received from the partnership and this can be done through your preferred Dunfermline accountant.

You Do The Business...

Leave The Numbers To Us!

30 Years Commercial & Accounting Experience. Having run multiple business ventures I can provide you with advice that will save you fortunes and help ensure your success!

Partnership Advantages

Finance

A partnership is straightforward to set up and therefore it is a relatively quick process, it's something that any Dunfermline accountant can do for you. You can have peace of mind once your partnership is set up as you know everything is in place and don’t need to worry about anything.

Since there will be more than one person contributing to the funds of the business it is likely that it will be easier to raise funds between them all. Someone may have a really good credit rating which allows them to borrow more and this can make up for someone who doesn’t have as good a credit rating and therefore can’t borrow as much.

Skills

One person might have certain skills that the other doesn’t and therefore you can each focus on what you are good at.

This can make the business better because you have people focusing on an area they are particularly good at rather than one person trying to do it all when they might not be particularly good at a certain aspect of the business.

Support

Having another person involved in the business can be an advantage when it comes to problems as you can offer support to one another and help each other through the process.

If a problem is bothering you there is someone you can talk to about it and between you discuss what the options are to come up with the best solution for the business.

Two Heads

When you have more than one person running the business you can bounce ideas of one another.

 

This can help you come up with an even better idea than if you were to come up with it yourself as sometimes two heads are better than one. Often bouncing ideas off one another can result in a really good idea coming to light.

Knowledge Base

The more people you have the wider knowledge you have in the business. This can make having a partnership more cost effective as you don’t need to pay anyone to help you out in areas that you are not too good at as you have other partners whose strengths are your weakness and therefore you can all play to your advantage.

A common factor we see a lot as a Dunfermline accountant is local businesses operating as partnerships where there is a "key man" doing most of the work and another person trailing along for the ride. Be sure to select someone with skills that can truly contribute to the venture.

Less Regulation

When you trade as a sole trader there are not as many restrictions on you as the sector is less regulated. This means that you have the ability to run your business exactly the way you would like to as there are not rules you must comply with. You don’t have to make business decisions based on fitting in with rules and regulations, so that is one less thing to worry about!

You will also have full control of your business when you are a sole trader this means all the decisions can be made by yourself without other people having their say. Ultimately, you can do things that suit you and you don’t need to compromise to please anyone else.

Hi! I'm Tanya, a partner

OnTax help me with partnership tax:

  • My partnership accounts are quickly dealt with

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  • Everything is filed on time

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Partnership Dis-Advantages

Debts

Unfortunately, when you are a partner in a partnership you and any other partners share the liability for any business debts which have not been paid, for example, if one person has 40 percent of the business then they will be liable for 40 percent of any debts which occur.

However, if a partner is unable to pay their share of the debts then you are likely to be asked to pay their share for them even if you will need to sell your personal possessions in order to do this.

Profit Share

Profits will also have to be shared out among partners depending on what share they have in the business. This can be annoying if you feel that you have worked harder or done most of the work but you are getting less profit because you have a smaller share in the business than your other partner does.

As a Dunfermline accountant we see it wall and by far, the largest cause of partnership fallouts center around effort versus reward. A partnership agreement will go a long way towards stopping this.

Taxes

You will be taxed based on all profits made by the business in the same year they were made, you don’t have the advantage of keeping some money in the business as a Ltd company does.

As any Dunfermline accountant will confirm, the partnership profits themselves are not taxable, but rather each person's share of them is. So a personal tax bill is inevitable if substantial enough profits are made.

The Risk Of Dis-Agreements

It is likely that you are going to have disagreements at some point or other as you will each have different ideas, opinions and expectations and so you will have to compromise to find a solution which suits you all.

This will be the same for making decisions it is likely that you will each have different decisions and therefore you will have to be flexible and be willing to not always get your way.

Summary Of Whether A Partnership Is A Wise Decision

The Upside

As you can see from what has been outlined there are a lot of good points surrounding becoming a partnership. It is the ideal solution if you are looking to become self-employed but are reluctant to do it on your own and you don’t want to have your own company.

It allows you to have your own business as well as giving you the stability of having someone by your side through it all.

It is easy to set up your partnership, particularly if engaging the services of a Dunfermline accountant and you can start trading straight away. You have the flexibility of choosing when you work and what work you do providing you and your partners can agree on this.

The Downside

You have also seen that starting a partnership can be risky with the element of unlimited liability for each partner as well as the threat of disagreements and arguments among partners.

Statistically, 2 out of 3 marriages end in divorce. The statistics for partnerships are even worse! A clash of personalities and unmet expectations are the ruin of many a partnership (and marriage!)

However, if you feel you are ready to take on this challenge then the rewards can be great.

A Balanced View

If you feel that becoming a partnership if the right thing for you then we can register you as a partnership on your behalf and then from there, the rest is up to you.

A word of advice though. Before you embark on this journey, all partners should write down everything they feel is important about how you will work together. Take this to a solicitor and get it formalised. It's the best form of business protection you can get!

You are in control of your own future and you can start turning your fantasy into reality.

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Frequently Asked Questions